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Goldman: Expect Oil Stocks To Catch Up With Rising Oil Prices

Shares in oil companies have underperformed the recent oil price rally, so some of those stocks are set to rise in a long-term oil price of $50-55, according to Goldman Sachs.

“The headwinds for the equities have now largely played out: energy has been the worst performing sector in MSCI World, with relative performance of energy equities in the US & Europe lagging their normal relationship with the oil price,” Goldman Sachs analysts said in a note on Monday, as carried by The Street.

In the third quarter, Brent prices rose by some 20 percent to post their strongest Q3 performance since 2004, while WTI prices saw their strongest Q3 in 10 years. Also last month, oil prices returned to a bull market after having increased more than 20 percent from the lows in June.

Oil companies’ shares, on the other hand, have lagged the performance of oil prices in recent months, and therefore have room to rise, according to Goldman.

Among U.S. producers, Goldman’s top pick is RSP Permian (NYSE:RSPP), to which the analysts have assigned a 12-month price target of US$44, which is a 27-percent upside potential compared to Friday’s closing price at US$34.59.

The 12-month price targets that Goldman has on EOG Resources (NYSE:EOG) and Diamondback Energy (NASDAQ:FANG) are each 14 percent higher than their current share prices. Chevron (NYSE:CVX) has a 12-month price target of US$123 with Goldman Sachs, compared to Chevron’s Friday closing price of US$117.50.

Beware of Goldman Sachs making Buy recommendations on shale oil companies at the same moment Jim Chanos has announced he is shorting shale due to their 1) accounting practices, 2) high CAPEX load, and 3) lack of cash to service debt going forward. It suggests GS may be reducing their own shale oil exposure.

Clyde Boyd on October 03 2017 said:

The glut is not only still here but it will soon get larger as Libya adds 1m bbl a day and winter sets in with no driving. Oil price mags love to boost traders speculation. They will lose. Prices are going to go down again!

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